SWP Research Paper Stiftung Wissenschaft und Politik German Institute for International and Security Affairs Ellen Scholl and Kirsten Westphal European Energy Security Reimagined Mapping the Risks, Challenges and Opportunities of Changing Energy Geographies RP 4 March 2017 Berlin All rights reserved. © Stiftung Wissenschaft und Politik, 2017 SWP Research Papers are peer reviewed by senior researchers and the execu- tive board of the Institute. They reflect the views of the author(s). SWP Stiftung Wissenschaft und Politik German Institute for International and Security Affairs Ludwigkirchplatz 3­4 10719 Berlin Germany Phone +49 30 880 07-0 Fax +49 30 880 07-100 www.swp-berlin.org [email protected] ISSN 1863-1053 Table of Contents 5 Issues and Conclusions 7 Introducing the Dynamic Energy Landscape 7 Conceptualising Energy Geography and Energy Security 9 Global Energy Trends 12 Global Energy Cooperation and Governance 13 Geopolitical Outlook in EU’s Neighbourhood 15 Infrastructure Corridors, Energy Geographies and Fragmented Orders 17 Energy Regions, Market Orders and Competitive Regionalism 22 Surveying and Addressing Energy Risks and Opportunities 23 Hard Energy Security Risks 25 ‘Soft’ Energy Security Risks 27 Environmental and Climate Hazards 28 Connectivity: Risk, Opportunity or Organizing Principle? 30 Tools and Instruments at Hand to Address Changing Energy Geography 30 Energy Governance Challenges from a European Perspective 30 Institutions, Tools and Instruments 32 Recommendations for European Engagement and Action 34 Abbreviations Ellen Scholl was a Visiting Robert Bosch Fellow and Research Assistant in SWP’s Global Issues Division. Dr. Kirsten Westphal is Senior Associate in SWP’s Global Issues Division. This Research Paper was written within the framework of the project “Energiesicherheit in der OSZE (Energy Security in the OSCE)” funded by the German Foreign Office. Issues and Conclusions European Energy Security Reimagined Mapping the Risks, Challenges and Opportunities of Changing Energy Geographies Energy security needs to be reimagined in light of the sea change in energy related to the energy transition and changing energy geographies. As new regional energy orders emerge in the Northern Hemisphere such as the EU and the Energy Community, the Eura- sian Economic Union and China’s new Silkroad Initia- tive “One Belt, one Road”, energy corridors could become more trans-regional and cross-border and a more heterogeneous energy system could develop. Yet, the proliferation of renewables could also result in a localization of energy production, driving trends in the opposite direction. The trajectory and outcome of the global energy transition remains uncertain. The energy transition could promote greater cross-border connectivity, which in turn could bring potential risks and oppor- tunities over the short and long term. However, the transition from the fossil fuel world to a sustainable energy future is not guaranteed, and there are risks inherent in the uncertainty over the transition’s devel- opment path. This uncertainty in and of itself breeds risk. These cross-border energy and security dynamics may also reinforce geopolitical risks for Europe. The shifts in energy and political geographies are a challenge for Germany and the EU, as geopolitical turmoil has come closer to the EU’s borders. While geopolitical crises have not yet resulted in an energy (supply) crisis, currently low energy prices and well- supplied markets should not distract from emerging trends and risks related to interconnected energy trade and markets and the nascent energy transition’s uncertain outcome. This ‘energy security dilemma’ may result in com- mercial disputes, supply interruptions, and potential energy sector retrenchment in national terms, poten- tially spilling beyond economic relations to impact political relationships and geopolitical constellations. This dilemma could also elevate the energy security paradigm over climate and environmental concerns, causing parties to lose sight of long-term goals, with severe repercussions for climate mitigation and the EU’s competitiveness The multilateral climate change agreement reached under the UNFCCC process in December 2015, known SWP Berlin European Energy Security Reimagined March 2017 5 Issues and Recommendations as the Paris Agreement, provides the impetus and and the potential emergence of “competitive regional- momentum for a global energy transition. The tran- ism” to emerge between blocs like the EU, the EU/Ener- sition will require international cooperation, sustain- gy Community and the Eurasian Economic Union and able growth models, shifts in investments and the the Shanghai Cooperation Organization. The absence development of disruptive technologies. It may also of shared principles amid the proliferation of infra- drive cross-border energy initiatives and require structure across regions could turn integration into harmonized standards and norms. Policymakers need fragmentation, potentially causing energy-related to rethink regulatory frameworks and incentives, disputes. financial and investment practices and energy system Multilateral governance is necessary to increase structures, while the role of and relationship between interconnection in energy and achieve economies of markets and states may need re-examining. scope and scale. Maintaining European energy secu- Amid this energy transition, the global political rity and competitiveness will require a renewed Euro- landscape is also profoundly changing. China’s rise pean commitment to external energy governance and and the pivot from West to East, from the Atlantic a reinvigorated EU appetite for multilateral initiatives to the Pacific, has the potential to reshape regional and inclusive governance. The EU must simultaneously political relationships, economic patterns and inter- improve internal coherence, particularly if the Energy national cooperation. As Europe struggles with in- Union is to make a substantial progress on integra- ternal issues and external relations, developments to tion. its east, including One Belt, One Road, the Eurasian The EU should seek to understand and raise aware- Economic Union and the Shanghai Cooperation Or- ness of new energy risks. This includes hard security ganization, show that the impetus for regional organi- risks like the physical disruption of flows and cyber sations, multilateral institutions and governance is threats; complex “soft” risks stemming from social, increasingly emanating from Asia. These initiatives economic and political factors; and environmental also suggest that the Eurasian continent could become and climate hazards. Acknowledging that there is no interconnected via energy trade, transit and infrastruc- one institution to address these risks, energy and for- ture, driven in large part by Beijing but also by Mos- eign policy approaches and existing dialogue plat- cow. This occurs amid strains in Western cohesion due forms, multilateral regimes and international organi- to Donald Trump’s election as the 45th US President. sations should be adapted to do so. The EU should Maintaining a cohesive “Western” governance approach work with partners across regions to establish dialogue during the Trump Administration will likely be dif- channels and utilize existing mechanisms to under- ficult, particularly in climate policy. take risk mapping, confidence building and crisis This presents a broad challenge for German and management through institutions like the OSCE or European energy security and external energy gov- UNECE. ernance, which should be understood and addressed Ultimately, the EU should promote coherence and through the prism of these tectonic shifts across establish common principles to avoid fragmentation Eurasia. These structural changes in the energy sector and facilitate exchange and cooperation. A proactive and in political alignments could redraw the energy EU approach to the risks and opportunities of integra- map across the northern hemisphere, while the tion and connectivity is essential to ensure a coopera- emergence of “infrastructure(d) geography” impacts tive and level playing field across Eurasia. To foster economic, political and societal relations. This could connectivity and retain competiveness, the EU must cause energy insecurity as simultaneous changes in shape the energy landscape by engaging in regional geopolitics and energy breed uncertainty, which governance and promoting a minimum set of rules. influences the actions and reliability of partners and hinders investment and planning. At the same time, changing energy geography offers opportunities alongside challenges, which Euro- pean external governance should be adapted to ad- dress. The looming fragmentation of energy spaces and orders has to be transformed into an opportunity for cross-regional dialogue and cooperation rather than resulting in fault lines between (energy) regions SWP Berlin European Energy Security Reimagined March 2017 6 Introducing the Dynamic Energy Landscape Conceptualising Energy Geography and understand how similar efforts by its neighbours Energy Security might impact its own supply environment. Energy security is a key concern for the EU, an energy The EU is working toward an Energy Union, an under- importer reliant on producing and transit countries taking that aims in part at making the EU a more for supply. The majority of the EU’s oil and gas imports political actor with respect to energy. 1 To achieve this, originate in neighbouring regions.